Greece's Bond Hangover

It felt good, for a day. You managed to crash the Greek party, and got yourself fixed up with some of those hot new 4.75 percent bonds, paying 99.133 cents on the euro for the privilege of lending to the nation for five years.

Today, you're not feeling so good. Those bonds dropped to as low as 98.5 cents today, though they've rallied a wee bit since, according to prices on the Bloomberg terminal. So the 991,330 euros you invested for a million face would hit your bottom line to the tune of 5,880 euros, if you sold at the current price of 98.545.

To recap: Greece yesterday sold 3 billion euros ($4.1 billion) of bonds. Its initial target was to sell 2.5 billion euros at yields of as much as 5.25 percent, but when 550 investors turned up waving 20 billion euros of bids, it decided to up the amount and shave the interest rate.

So, should you bail? The allocation table shows hedge funds bought about 33 percent of the bonds, with banks taking 14 percent and insurance and pension funds getting just 4 percent. The bulk of the issue, then, ended up with what the market calls loose hands, rather than long-term holders. (Which sort of begs the question as to why Bank of America, Merrill Lynch, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan and Morgan Stanley chose to be so generous with the hedge-fund crowd.)

You presumably thought a 4.95 percent yield was decent bang for your buck in a world where lending to Germany until 2019 gets you just 0.58 percent, and Uncle Sam is only paying about 1.6 percent. In which case, you might hang on to your investment; so-called real-money accounts such as pension funds might have agreed with you on the value proposition, but didn't get lucky in the initial allocations. The secondary market might bail you out.

On the other hand, if you got caught up in the hyperbole of Greece's so-called exit from exile and buyer's remorse is setting in, a call to your friendly bond broker might be in order.

To contact the writer of this article: Mark Gilbert at magilbert@bloomberg.net.

To contact the editor responsible for this article: David Shipley at davidshipley@bloomberg.net.

Mark Gilbert is a Bloomberg View columnist and member of the Bloomberg View editorial board. He has worked at Bloomberg News since 1991, most recently as London bureau chief. He is the author of "Complicit: How Greed and Collusion Made the Credit Crisis."
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